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The New Zealand dollar fell against its Australian counterpart after accelerating inflation across the Tasman reduced the chance the Reserve Bank of Australia will cut interest rates.
The kiwi fell to 93.81 Australian cents from 94.46 cents immediate before the inflation report and 94.40 cents yesterday. It traded at 83.22 US cents at 5pm in Wellington from 83.09 cents at 8am and 83.21 cents yesterday.
Australian consumer prices rose at an annual pace of 2.7 percent in the December quarter, ahead of market expectations of a 2.5 percent rise. The faster-than-expected pace of inflation saw the Australian dollar gain on the prospect the RBA won't be able to cut rates again to revive a moribund economy.
Traders are pricing in an increase of 5 basis points to Australia's 2.5 percent cash rate over the coming 12 months, according to the Overnight Index Swap curve, having priced in a reduction before the release.
"The CPI number capped the chance of a rate cut any time soon, and the kiwi/Aussie took a bit of a dip," said Alex Hill, head of dealing at HiFX in Auckland. The kiwi has "big support" at 92.80 Australian cents, and will attract "big demand there" if it falls further, he said.
The Australian inflation figures follow yesterday's local CPI which unexpectedly rose in the December quarter, fuelling expectations the Reserve Bank of New Zealand will hike rates as early as next week. Traders have been pricing in a 46 percent chance of an increase next week
HiFX's Hill is sceptical Wheeler will lift rates as housing data is showing early signs the central bank's restrictions on low equity home lending are starting to bite and while the local currency remains high.
The kiwi fell to 86.54 yen at 5pm in Wellington from 87.06 yen yesterday after the Bank of Japan today stuck to its plan to expand its monetary base by an annual 60 trillion to 70 trillion yen.
It slipped to 50.49 British pence from 50.64 pence ahead of UK employment figures which are expected to show a decline in the unemployment rate, and minutes to the Bank of England's last meeting.
The local currency traded at 61.31 euro cents from 61.42 cents yesterday. The trade-weighted index fell to 78.86 from 79.09.